Microeconomics Quiz

Study Notes

The value of the next best alternative that is given up when a choice is made
Represents the trade-off between different options
Opportunity cost is not just limited to monetary costs, but also includes time, effort, and other resources
Example: If you choose to spend 100onaconcertticket,theopportunitycostistheothergoodsorservicesyoucouldhaveboughtwiththat100 on a concert ticket, the opportunity cost is the other goods or services you could have bought with that 100onaconcertticket,theopportunitycostistheothergoodsorservicesyoucouldhaveboughtwiththat100

A state in which the supply and demand curves intersect
The point at which the quantity supplied equals the quantity demanded
No excess supply or demand in the market
Equilibrium price and quantity are determined by the intersection of the supply and demand curves
Example: If the supply curve shifts to the right, the equilibrium price will decrease and the equilibrium quantity will increase

The study of how firms produce goods and services
Key concepts:
- Total Product (TP): The total quantity of output produced by a firm
- Average Product (AP): The average quantity of output produced per unit of input
- Marginal Product (MP): The additional output produced by an additional unit of input
- Law of Diminishing Returns: As the quantity of a variable input increases, the marginal product of that input will eventually decrease
Firm's goal: To maximize profits by producing the optimal level of output

The study of how individuals make decisions about what goods and services to consume
Key concepts:
- Consumer Preferences: Rankings of different combinations of goods and services based on their utility
- Budget Constraint: The limit on the amount of goods and services a consumer can afford
- Indifference Curve: A graph showing different combinations of goods and services that provide the same level of utility
- Demand Curve: A graph showing the relationship between the price of a good and the quantity demanded
Consumer's goal: To maximize utility (satisfaction) given their budget constraint

Supply:
- The quantity of a good or service that producers are willing and able to produce and sell at a given price level
- Determined by factors such as production costs, technology, and expectations
Demand:
- The quantity of a good or service that consumers are willing and able to buy at a given price level
- Determined by factors such as consumer preferences, income, and prices of other goods
Law of Supply: As the price of a good increases, the quantity supplied also increases
Law of Demand: As the price of a good increases, the quantity demanded decreases

Types of market structures:
1. Perfect Competition:
  - Many firms producing a homogeneous product
  - Free entry and exit
  - Perfect information
  - Firms are price-takers
2. Monopoly:
  - Single firm producing a product
  - Barriers to entry
  - Firm has market power
  - Firm is a price-maker
3. Monopolistic Competition:
  - Many firms producing differentiated products
  - Free entry and exit
  - Imperfect information
  - Firms have some market power
4. Oligopoly:
  - Few firms producing either homogeneous or differentiated products
  - Barriers to entry
  - Firms have significant market power
  - Firms are interdependent
Each market structure has its own characteristics, advantages, and disadvantages